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The Internal Organization

The Internal Organization . Resources, Capabilities, Core Competencies, and Competitive Advantages Pages 68 - 94. Profitability in the U.S. Retailing Industry, 1996-2001. Why Internal Analysis?. Early strategy theory rooted in industry structural analysis - external focus

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The Internal Organization

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  1. The Internal Organization Resources, Capabilities, Core Competencies, and Competitive Advantages Pages 68 - 94

  2. Profitability in the U.S. Retailing Industry, 1996-2001

  3. Why Internal Analysis? • Early strategy theory rooted in industry structural analysis - external focus • This approach has lost its appeal because: • internationalization & deregulation has all but removed safe havens • technology and changes in demand have blurred industry lines

  4. Innovation vs. Efficiency: 3M • Diversified technology into 6 business segments • Historically: Commitment to innovation • Slogan: The Spirit of Innovation. That’s 3M. • Relied on skills of scientists and engineers • Historically 1/3 annual sales from products introduced into marketplace in most recent 5 yrs. • 30-plus core technologies basis for > 55,000 products • Changing times: by mid-2007 only 25% sales earned from products introduced over previous 5 yrs – why?

  5. Innovation vs. Efficiency: 3M (Cont’d) • …Leadership • CEO McNerney (formerly of GE) implemented Six-Sigma, a management technique to decrease product defects and increase efficiency • Six Sigma doesn’t lend itself to creativity / innovation, something imperative in the R&D arena • Six Sigma • Focuses on actions to define, measure, analyze, improve and control – efficiency • Efficiency vs. innovation – it’s one or the other! • New CEO Buckley – reenergized R&D

  6. Analyzing the Internal Organization • Context of Internal Analysis • ‘Global mind-set’ • Ability to study an internal environment in ways that do not depend on the assumptions of a single country, culture, or context • Analyze firm’s portfolio of resources and bundle heterogeneous resources and capabilities • Understand how to leverage these bundles • An organization's core competencies creates and sustains its competitive advantage • Creating Value

  7. Resource Based View Model of Competitive Advantage and Strategic Competitiveness

  8. Resources and Capabilities • Tangible • Financial, Organizational, Physical, and Technological • Assets that can be seen, touched and quantified • Examples include equipment, facilities, distribution centers, formal reporting structures • Intangible • Human, Innovation and Reputational Resources • Assets rooted deeply in the firm’s history, accumulated over time • Usually can’t be seen or touched • Examples include knowledge, trusts, organizational routines, capabilities, innovation, brand name, reputation

  9. Resources & Capabilities • Resources are what you have; Capabilities are what you can do

  10. Evaluation of Resources Strength or Weakness • relative to competitors • basic business requirements • key vulnerabilities

  11. Core Competencies • central to the firm’s competitiveness • rewarded in market place • combination of skills & knowledge, not products or functions • flexible, long term platforms • embedded in the organization’s systems • distinctive competencies are those the firm performs better than rivals • All core competencies have the potential to become core rigidities

  12. Sony

  13. Sustainable Competitive Advantage Must be valuable, rare, inimitable, and non-substitutable Sustainability is a function of • Durability - how long will it last? • Technology? Reputation? Fixed Assets? • Imitability - how quickly can it be copied? • Transparent - easy to see? • Transferable - can it be done elsewhere? • Replicable - can we do it here?

  14. Factors that Limit Imitation • Physical Uniqueness • Path Dependency • Causal Ambiguity • Social Complexity • Absorptive Capacity

  15. Sustainable Competitive Advantage? • Competitive consequences include • Disadvantage, parity, temporary advantage and sustainable advantage • Performance implications include returns • Above, below or average

  16. Another Tool to Consider • Porter’s Value Chain

  17. Relative costs and prices Where do cost/price differences come from? • raw materials and components • differences in technology, plant, equipment • efficiencies, learning, experience, wages, productivity • marketing, sales, promotion, warehousing, distribution, administration costs • distribution • inflation, exchange and tax rates

  18. Value Creation per Unit

  19. Comparing Toyota and General Motors

  20. Porter’s Value Chain Views the organization as a series (chain) of activities, which may or may not create value

  21. Porter’s Value Chain (cont.) • Primary Activities • Inbound logistics – Supply Chain Management • Operations • Outbound logistics - Distribution • Marketing and sales • Customer service • Contribute to the physical creation of the product/service, its sale and transfer to the buyer, and its service after the sale

  22. Porter’s Value Chain (cont) • Support Activities • Company infrastructure – General Admin • Human resource management • R&D, Technology and Systems Development • Procurement

  23. The Basic Value Chain

  24. A low cost strategy….. Company Infrastructure HRM R&D, Technology & Systems Development Margin Procurement Service Marketing & Sales Inbound Logistics Outbound Logistics Operations Margin …tries to pull the arrow back…..

  25. Think back to the Southwest example… • Single aircraft • Short hauls • No meals, transfers, seat assignments • Secondary airports • No use to travel agents…..

  26. Low Cost - Support Activity examples…... Fewer layers of management Policies to reduce turnover WalMart’s inventory system Margin Monitor supplier performance Service Marketing & Sales Inbound Logistics Outbound Logistics Operations Margin

  27. Low cost - Primary Activity examples…. • Inbound - Toyota • Operations - Subway • Outbound - Campbell Soup’ Continuous Replenishment • Marketing/Sales - WalMart • Customer Service - Federal Express

  28. A differentiation strategy….. Company Infrastructure HRM R&D, Technology & Systems Development Margin Procurement Service Marketing & Sales Inbound Logistics Outbound Logistics Operations Margin ….tries to pull the arrow forward...

  29. Differentiation - Support Activity examples…... Commitment to quality Compensation rewarding innovation Amazon recommendations Margin Purchasing high-quality components Service Marketing & Sales Inbound Logistics Outbound Logistics Operations Margin

  30. Differentiation - Primary Activity examples…... • Inbound - Dell • Operations - Marriott • Outbound - WebVan • Market/Sales - Nordstrom’s • Customer Service - Pirtek

  31. Your Firm Buyers Suppliers Your Rivals

  32. Your Firm Opportunities for Advantage Buyers Suppliers Your Rivals

  33. Your Firm Opportunities for Adding Value Opportunities for Adding Value Buyers Suppliers Your Rivals

  34. Outsourcing • Definition: Purchase of a value-creating activity from an external supplier • Effective execution includes an increase in flexibility, risk mitigation and capital investment reduction • Trend continues at a rapid pace • Firms must outsource activities where they cannot create value or are at a substantial disadvantage compared to competitors • Can cause concerns • Usually revolves around innovative ability and loss of jobs

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